It wasn’t long ago that Walmart execs were rarely seen or heard in public forums, certainly not on bev side.  But that’s changed as retailing giant aggressively revamps for new era, effort seen in areas like ecommerce, where it’s finally become credible player vs Amazon.  So bev buyers from Bentonville, Ark, giant were back on the hustings at Bev Forum this week, looking to cement recent message that they offer welcoming environment for leading-edge, and even bleeding-edge, brands.  This time divisional merch mgr for chilled bevs, Sarah Alderson, who’d pitched entrepreneurs at BevNet Live just a few months ago (BBI, Dec 4) was joined by vp/DMM Seth Malley.  Their appearance coincided with retailer’s recent onboarding of brands like Forto, LifeAid, Hellowater, Trimino and C4 (BBI, Apr 8). 

Malley and Alderson had been buying colleagues on frozen food side, and as Malley noted, their bev-buying approach was instilled partly by that experience, where they saw unlikely-seeming entries like vegan pizza ignite.  Lightbulb went off: far from avoiding frozen sections, millennials were walking down those aisles but just not spotting anything they liked.  So the aim now, as Seth put it, is for “stopping power” in brand selection.  For those kinds of brands, he seemed to imply, the marketing almost takes care of itself.  “When you find something that’s authentic and meets a need and resonates with the customer, you don’t have to do much to sell it,” he offered.

What are bev brands they view as commanding stopping power?  Duo showed slide featuring Hapi kids drinks, Soylent meal replacements, canned Dry Sparkling zero-sugar subline and Bulletproof Coffee.  “These are all brands that are now at Walmart that you wouldn’t necessarily expect to find there,” Malley said.  “This has stopping power . . . something truly authentic, customers willing to spend time shopping.”  He happily acknowledged doing considerable learning on cutting-edge retailers like Southern Calif’s Erewhon chain, where bev set seems to change almost weekly.  (BBI profiled Erewhon’s new Santa Monica store a few months ago – BBI, Dec 3.)

Moderator Danny Stepper of LA Libations, who assembled panel that also included Bristol Farms exec (below), set stage by noting that previously impregnable categories are looking ripe for disruption, citing Body Armor inroads into Gatorade franchise, Fairlife’s challenge to dairy biz and onset of performance energy brands like C4 and Bang that make energy leaders “look a little stale now.”  When new categories hit, they can hit big, as was case with kombucha, plant-based bevs, ketogenic plays and likely CBD.  (Seeing ironclad grasp on chelada category by Clamato, Stepper himself mustered one such disruptor under brand name Arriba, in partnership with Hispanic retailer Northgate and copacking giant Langers – BBI, Jul 30.  Two months in, it’s won 35 share at Northgate’s stores, he reported, in unchallenged category that may run $500 mil or more.)  Seeing potential, retailers themselves are investing in brands, among them Amazon, Safeway, Walmart, Danny noted.  (We would add Whole Foods and 7-Eleven.)

So it’s with new sense of urgency that even giants like Walmart are working to cultivate innovative new brands that reflexively head to indie chains on coasts for incubation.  “We’re looking to brainstorm with you even if you have less than $10 million in revenue,” was Malley’s message.  And while entrepreneurs with organic brands always want to launch in Calif, he pointed out that Walmart’s biggest-selling organic store is in Oklahoma, where shoppers have fewer options to buy organic.  “When we meet the needs of customers in food deserts like Oklahoma, they come to us,” is his conclusion.  On similar note, one of top Soylent stores is in Dakotas, serving people working the oilfields.  So entrepreneurs should take broad view of where opportunities are.

Tho innovative brands are finding their way into all of Walmart’s modulars (its term for Plan-O-Gram), new approach is most visible in New & Cool cooler that launched 3 weeks ago in just 17 stores.  Modest goal was to at least generate comparable sales to what was replaced, but some brands are doing 200% of forecast out the gate, Malley reported.  So “overall it’s doing what it’s supposed to do.”  That’s contrast to typical supercenter with 260 linear feet of bevs, but much of it random assortment, including section called healthy beverages “that wasn’t really healthy beverages.”  So that’s been revamped too, with some modulars actually store-specific at this point.

Some practical details: Walmart prefers warehouse distribution system because it’s more controllable and yields better margins, and co can steer new suppliers to consolidation cos.  And not surprisingly for retailer fixated on everyday low prices, 95% of volume occurs off the shelf, so off-shelf promos “not that big a deal to us,” Seth said.  Walmart prefers to use that space just to stage inventory to get thru the weekend.

Bristol Farms: Taste Rules, No Slotting, Taste Rules, Quick Changeovers    Bristol Farms and its sibling Lazy Acres Natural Market chain often are out there on bleeding edge in Southern Calif.  “We move fast,” explained Pat Posey, vp for non-perishable procurement & merchandising.  “If something comes in that we think is good, we pull the other thing out.”  Criteria for new brands?  “First and foremost, taste,” Pat said.  (That prompted polite interjection from Walmart’s Malley: “How did kombucha pass the taste test?”)  Further, Bristol Farms doesn’t charge slotting fees but does ask that brand owners promote product.  (Even better if the owner is in the stores representing the brand.)  A lot of inventory is moved off endcaps (Walmart’s negligible reliance on endcaps as described by Malley and Alderson “is astounding to me,” he confessed).  

In footprint, co is tightly focused operation, tho it just got new overseas owner.  Parent co Good Food Holdings operates just 13 Bristol Farms stores and 5 Lazy Acres, all in SoCal, and sister co Metropolitan Market in Pac NW.  Good Food Holdings was acquired for $275 mil in Dec by Emart, South Korea’s largest retailer, which had started to reach limits to growth in home market, as Pat explained.  (He said chain had resources to purchase co as big as Albertsons but settled on Bristol Farms, in part to transfer learning to home market.)

Co’s stores on avg are half the size of conventional grocer, but annual sales are just 26% less, meaning sales $$ generated per square foot are 31% more.  And gross margins are 10-40% higher.  “We’re good and we charge for it,” Posey said without apology.  Lazy Acres is positioned more directly to healthy living, offering more wood-grained finishes in décor and positioning itself as authority on vitamins and body care.  Two of the stores do over $100K per week in supplements “at pretty high margins.”  They carry unusual 56 feet of single-serve cold bevs along with 94 feet of dry bevs. 

Posey noted that co isn’t driven by strict product guidelines, aside from wanting to carry “best-tasting, freshest food available.”  He said, “We’re brand builders:  we look for little brands that want to come in and promote and build their brands to scale.”  Once those items start attaining scale and enter likes of Walmart and Target, Bristol Farms thinks hard about whether to keep them, given downward slope of pricing at new rivals. 

Pat also made interesting observation from visit to Whole Foods store in Playa Vista about 3 months ago.  Of 75 or so patrons hanging out on patio, only 3 had same drink.  His conclusion: non-alc bevs “are becoming more of a status symbol,” where people look to diffentiate their identity by the brand they’re nursing.  We’ve seen that in beer for decades, but it seems newer consideration on NA side. 

Dissenting View: Halen Brands’ Cohen Urges Focused Approach, Building Compelling Velocity Story at Smaller Banners that Millennials Shop   A more welcoming Walmart?  Tho it wasn’t structured that way (he was speaking on entirely different panel), Halen Brands cofounder/ceo Jason Cohen offered somewhat dissenting view in describing his efforts behind OWYN plant-based protein brand.  (Letters stand for “only what you need.”)  “Fish in a small barrel at first,” he urged.  Seek out smaller chains where you can put a lot of emphasis.  After all, millennials are shopping at banners like Wegmans, Publix and Erewhon (and on Amazon).  Make sure the people you hire have “have relationships at the retail level you need.”  (That seemed rebuke to those who hire ex-Coke or Pepsi execs whose retailer relationships may only be at corporate level.)

To back up his assertions thru lens of OWYN’s development, Jason offered array of interesting stats.  For example, OWYN sells 10-20X volume at Whole Foods natural grocery as at conventional Shop Rite across the street at same price.  Since you have to pay slotting to get into Shop Rite, why wouldn’t you put your money into working Whole Foods?  “While a lot of retailers say they want emerging brands, they might not be ready for it” with right employees, culture or environment.  So it may be smarter strategy to focus on tripling or quadrupling velocity in Wegmans over 18-month period, building case that wins over all the retailers around that store.  Just working relatively narrow core customers like Wegmans and Bristol Farms enabled OWYN to exceed $10 mil in sales last year.  Add in new banners like Fresh Thyme and Sprout’s (and move into Big Geyser DSD house in NY) and this year brand is on target to generate $20 mil in sales.  Along way, it’s become #1 driver of growth in protein realm – only 7% of growth in broad set of MULO stores but 54% of growth in natural and 36% of growth in specialty.  And in stores that carry Coke-aligned Core Power and Pepsi-owned Muscle Milk, OWYN holds its own, despite aggressive promos by rivals.  “No price these legacy brands can dictate convert our customers,” he declared.  

Cohen urged brand owners to work hard at store level, erecting secondary and tertiary displays, then going back to buyer to show velocity boost, even without price promotion.  Even those who decide to go wide and fast, Jason advised, should make sure they can work with individual store mgrs to get those additional placements and build compelling velocity story. 

(Note that Cohen’s views were in synch with annual resolutions for entrepreneurs that BBI runs every Jan in first issue of year, warning not to be afraid to say no to retailers who’re too difficult to support at early stage, and to be wary of recruiting big-company vets whose retailer instincts and relationships may not be right – BBI, Jan 2.)

Red Bull North America is heading in new marketing direction, inking multiyear deal with USA Basketball to set up feeder tournaments for men and women seeking a berth on 3x3 half-court basketball due for debut at 2020 Summer Olympics in Tokyo.  Under umbrella of what’s being called Red Bull USA Basketball 3X Nationals, energy drink power will host 20+ qualifying tournaments around US to ID 8 athletes who might represent US at summer games.  Winning teams will compete to accumulate enough FIBA points to move on to regional commencing this fall and then to Nationals next Mar as selection of men’s and women’s teams draws near.  The first qualifier will occur Jun 22 in Detroit.  Red Bull Media House media machine will churn out profiles and other content to elevate visibility of newly elevated activity, which brings street flair in synch with numerous other Red Bulls sports affiliations. 

Sean Eggert, who runs Red Bull Sports for North America, said new event builds on brand’s NBA team and athlete partnerships.  Red Bull already is official energy drink of USA Basketball and its men’s and women’s teams, who both took gold at 2016 Summer Olympics.  Among pro basketball endorsers are Anthony Davis, Blake Griffin and Breanna Stewart.

Just ahead of Monster Beverage earnings report late this afternoon, RBC Capital’s Nik Modi offered deep dive into competitive dynamics between Bang Energy and Monster response Reign, drawing on variety of sources to conclude that Reign is off to strong start and could leapfrog Bang in sales within a year.  Along way, Nik also poked a few modest holes in Bang growth story, pointing out, for instance, that its explosive growth in scanner data is coming in part at expense of 30-40% sales decline in unmeasured nutrition channel, as consumers migrate to more accessible c-store and other channels that Bang is opening up. 

Tho consensus view on Wall St has often had Monster sales heading down, “Monster actually has been overdelivering more often than not in the US despite the dramatic growth in Bang and other brands like C4,” in 9 out of past 12 qtrs, as he showed.  So Modi has no trouble seeing MNST maintaining sustainable topline growth of 6% over next 5 years even as new entrants get traction.

While some have assumed Bang’s growth is coming out of Monster’s hide, Modi’s analysis suggested that overlap is greater with tertiary energy brands than with leaders like Monster.  Using data from co called Numerator, he showed that about 14% of Monster households also purchased Bang in latest 52 wks, and 58% of Bang households also purchased a Monster.  So it’s smaller brands that are “getting cannibalized by Bang much more meaningfully than Monster.”

Meanwhile, Bang challenger Reign just headed into market this month, and early signs are encouraging, Modi argued.  Scanner info shows it at close to 30% ACV, but info from Coke bottlers suggests it might be closer to 50-60% range already.  And that’s not including non-scanned markets like nutrition channel, which MNST brass had said they would make a key target.  Even this early, Reign already is 23% as large as Rockstar, 17% as large as Bang.  Within MNST portfolio, it already is bigger than Hydro, in market 28 months now.  (Of course, tho Nik didn’t go there, it hasn’t been uncommon for major brands to get off to big start as pipeline fills and promos kick in and falter later.  But so far, from what there is to judge on, performance seems strong.)

Monster execs have quietly seethed over frequent analyses that cite scanner data to show that brand is softening, arguing that scanner data needs scrubbing to attain meaningful accuracy, and that some of analysts have omitted entire fast-selling skus (like Ultra Paradise).  Nik didn’t go there today, but he did note that scanner database covers only 16-17% of 150K+ c-stores, omitting many of the indies where a system like Coca-Cola can be expected to offer greater penetration than Bang achieves. 

One intriguing line of analysis was so-called basket affinity analysis, checking to see what other items shoppers buy and how those overlap with rivals.  Among top 15 sub-categories, Monster and Bang overlapped only in 2 (shoppers of both have propensity to purchase La Croix and Propel), making for very little overlap.  By contrast, similar analysis of Body Armor vs Gatorade in sports drink category finds that households share purchasing patterns in 7 of top 15 sub-categories.  “This is what a problem looks like,” as Nik’s slide said of Gatorade, which seems to have clearly suffered at Body Armor’s hands.

After earlier $55 mil fund inked investments in Barnana, Caulipower, Birch Benders and Olipop and enjoyed exit with Chameleon Cold-Brew, newly assembled $100 mil Fund II of Boulder Food Group is aiming to keep growing with its portfolio partners while still taking a flier on some early-stage players with revenues of as little as $1 mil.

BFG is run by managing partners Tom Spier, based in Boulder, and Dayton Miller, based in LA.  Tom comes out of entrepreneurial food space, having cofounded Evol Food frozen foods and run Bear Naked Granola, while Miller’s will be familiar name to BBI readers from role as cofounder of once high-flying doctor-devised brand called Function that sought to fill void left by Coca-Cola acquisition of Vitaminwater a decade ago with more efficacious entry.  After landgrab strategy didn’t pan out and several down rounds on capital side, brand ultimately exited modestly to Sunsweet.  Miller had left M&A role at Disney to grow Function, so he boasts both financial expertise and hands-on bev experience. 

BFG focuses mainly on natural/organic, better-for-you foods, bevs and supplements, seeking brands as small as those with “line of sight” to trailing $1 mil sales.  That puts it among minority of big funds that don’t maintain rigid sales threshold on order of $5 mil or $10 mil or more.  It invested in Olipop when that brand was on shelf only in Erewhon natural chain and handful of other accounts.  But Miller stressed that doesn’t mean BFG wants to fritter away its focus on cluster of toddler brands.  “We’ll go super-early but we don’t want all early-stage” cos, he said.  “We’re not a pre-product company, it has to be on the shelves and selling somewhere.”  In part that’s a function of finite time that BFG principals have.  “I want to be as available for David Lester (at Olipop) as for Gail Becker at Caulipower,” he said.

Investment targets don’t necessarily have to be organic, but BFG likely will not go in if they’re not all-natural, Miller indicated.  While it has certain base premises that it works off, Miller emphasized that a lot of deals prove to be opportunistic.  He described fundamentally conservative operating bias, going with gradual buildout rather than landgrab approach and effort to get co to be self-sustaining financially.  And “price point matters,” in quest to help incubate big winners, not items destined to remain niches.  As noted, BFG’s investments have included 2 pure plays in bevs with prebiotic soda Olipop and altdairy player Malk, along with powder hydration play Scratchlabs, snack play Barnana and Caulipower.  Only exit on bev side was Chameleon Cold-Brew (to Nestle).  “We loved that they were leaders in organic and couple that with low-sugar,” Dayton reminisced of Chameleon; also crucial was that BFG team viewed ceo Chris Campbell as “rockstar operator.” 

Among current investments, Olipop was interesting way to play in gut health after taking close look at kombucha, with brand’s potential mass appeal and taste getting high marks and BFG principals respecting David Lester and Ben Goodwin.  With Malk, BFG loved branding, viewed Malk as having cleanest, freshest taste among altdairy plays, appreciated authentic story of founder August Vega and her methodical buildout.  Scratchlab boasted “true cultlike following” right in Boulder, where it would be easy for BFG to monitor activities, and boasts real science behind formulation.  Among service-oriented investments is Austin-based Cartograph, an Amazon sales engine that numbers as clients several BFG partners who’d touted its capabilities.  Green Spoon, a broker firm that’s also in Boulder, gleaned insights of benefit to portfolio such as Whole Foods’ imminent move to dial back presence of kale as interest began to recede.  So again, portfolio partners’ experience led to new investment.

BFG lately has sought out media arms like BevNet and BBI for interviews because, as Miller readily allowed, capital side has become more crowded segment and Boulder group wants to make sure its voice is heard.  “It’s harder now than when we started 5 years ago, but overall, there are tailwinds” behind sector that remain grounds for optimism, he indicated.  And if the market does turn down, “people will still care about what they put in their bodies.”  Miller anticipates that # of exits will increase as Big Food makes M&A an integral part of innovation mix that also includes relaunch of existing brands and incubator/accelerator activities. 

With Monster Energy lately having absconded to local Coke bottler, Big Geyser execs had said they’d replace powerful energy entry with group of niche brands. After adding C4, Uptime and Phocus in recent weeks, big NY house has now added calorie-burning fitness line Celsius to portfolio. Move gives Boca Raton, Fla-based Celsius its first significant DSD foothold in biggest US metro, completing DSD map in region as Celsius enters CVS and Target chains on national basis. Big Geyser also has tight connection with local 7-Eleven stores, where Celsius has been available. Distributor is taking on full Celsius Original line and higher-caffeine Celsius Heat extension. Big Geyser coo Jerry Reda lauded Celsius’ “healthy functional fitness-forward position” in energy space.

Eco-friendly carbonated bev system called Sprizzi Drink that uses recyclable flavor “bullets” is claiming to have landed 5-year, $100 mil investment from gov’t of Rugao, China, tho much of that seems to be in non-cash benefits like warehouse and office space, tax credits and letters of credit. Also in the mix are cash fund for innovation awards, equipment loans and gov’t cash grants, co announcement said. “Funds will also be used for building a bullet-filling factory in Rugao,” co said. Sprizzi also has “received funding from strategic partners for global licensings, angel investors and is currently in talks with several other partners and independent investors.”

Coca-Cola unveiled summer activation programs for core brand, including “Enjoy Coca-Cola” campaign and aggressive activation vs Women’s World Cup being played in France this summer. On packaging side, labels on key impulse pack, 20-oz PET bottles, of Coke and Coke Zero Sugar will sport peel-away wristbands that feature arty designs like Coke-bottle-shaped popsicle or hot dog, with 1 of 6 including “I Believe” slogan with crest of the US women’s soccer team. Scanning the wristband offers chances at limited-edition Coca-Cola Believe Wristband made from red goal nets of 2019 SheBelieves Cup tourney and tickets to sendoff series games. Packaging also will offer new look featuring word “Enjoy” written in familiar Coca-Cola Spencerian Script before “Coca-Cola” as KO continues to take experimental approach even with core trademark. TV ads breaking May 20 celebrate Coke’s role in summer love, grilling out and Women’s World Cup.

Stay up to date on the latest trends and forces shaping the fast-changing US beer biz at the 2023 Beer Insights Spring Conference, coming to Chicago this May. Recent additions to our program include deep dive into key drivers of distrib M&A and a panel of industry attys exploring the consequences of convergence and increasing govt activity.